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Faculty of Economics

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Safronov, M.

A Coasian Approach to Efficient Mechanism Design

CWPE1619

Abstract: Vickrey-Clarke-Groves and d'Apresmont Gerard-Varet mechanisms implement efficient social choice by paying each agent the externality her report imposes on all other agents. This paper provides an alternative mechanism, where each pair of agents directly compensates each other according to the externalities they impose. In the new mechanism any agent can guarantee to receive her ex ante efficient payoff by committing to report truthfully, regardless of others' strategies. This absence of ex ante externalities makes all equilibria efficient, whether agents act individually or in coalitions. Truthful report is a coalition-proof equilibrium, and under mild assumptions it is the uniquely rationalizible strategy. The mechanism is extended to repeated interactions.

Author links: Mikhail Safronov  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1619.pdf

Open Access Link: https://doi.org/10.17863/CAM.5708